Penn State International Law Review Volume 17 Article 5 Number 2 Dickinson Journal of International Law 1-1-1999 Drawing a Distinction Between Bootleg and Counterfeit Recordings and Implementing a Market Solution Towards Combating Music Piracy in Europe Clifford A. Congo Follow this and additional works at: http://elibrary.law.psu.edu/psilr Part of the Comparative and Foreign Law Commons, Criminal Law Commons, and the Intellectual Property Law Commons Recommended Citation Congo, Clifford A. (1999) "Drawing a Distinction Between Bootleg and Counterfeit Recordings and Implementing a Market Solution Towards Combating Music Piracy in Europe," Penn State International Law Review: Vol. 17: No. 2, Article 5. Available at: http://elibrary.law.psu.edu/psilr/vol17/iss2/5 This Comment is brought to you for free and open access by Penn State Law eLibrary. It has been accepted for inclusion in Penn State International Law Review by an authorized administrator of Penn State Law eLibrary. For more information, please contact [email protected]. Drawing a Distinction Between Bootleg and Counterfeit Recordings and Implementing a Market Solution Towards Combating Music Piracy in Europe* "Piracy of sound recordings is the single biggest threat to the economic and cultural health of the music industry in Eu- rope. "-International Federation of the Phonographic Industry (hereinafter "IFPI") spokesman, Adrian Strain "I want [music pirates] to think about jail sentences, confisca- tion of assets and of expensive and lengthy litigation."-IFPI head of enforcement, lain Grant.2 I. Introduction Europe is home to the world's largest retail market for music recordings.3 Europe has displaced the United States as the world's major music market in the last ten years.' With 13.4 billion U.S. dollars in sales, Europe commands 34% of the global market, compared with 33% for the United States.' To put it in perspec- tive, these numbers place the European music industry ahead of the European Union's steel industry.6 * An earlier version of this comment received First Prize in the 1998 ASCAP Nathan Burkan Memorial Competition at the Dickinson School of Law. An abbreviated version also placed in the National Semi-Finals of the First Annual Entertainment Law Initiative Scholarship Competition, sponsored by the National Academy of Recording Arts and Sciences. 1. Francine Cunningham, Bootleg Albums Take Spice out of Music Profits, THE SCOTSMAN, Feb. 22, 1997, at 3, available in LEXIS, News Library. 2. Chris Ayres, Pirates of the High Cs Plunder Pounds 3.1 Billion, THE TIMES, Sept. 19, 1997, available in LEXIS, News Library. 3. See Music Industry: Record Companies Call for EU Anti-Piracy Policy, EUR. REP., July 17, 1996, available in LEXIS, News Library. 4. See Cunningham, supra note 1, at 3. 5. See id. 6. See id. In terms of revenues, Europe's music industry is three times larger than the European film industry, and more than twice as large as the European video industry. See Shada Islam, Europe's Music Industry Fetes Success but Worries About Future, DEUTSCHE PRESSE AGENTUR, July 10, 1998, available in 384 DICKINSON JOURNAL OF INTERNATIONAL LAW [Vol. 17:2 Income from the music industry is earned from several sources. In most instances, album sales are the largest source of income to publishers and writers.7 Record companies pay their artists royalties on each album sold.8 After album sales, the largest sources of income are public performances, synchronization rights,9 and printed editions of sheet music, respectively." Pirated sales of musical recordings cost the music industry five billion dollars in 1997.11 This amount represents nearly 15% of worldwide legitimate sales, which have been valued at forty billion dollars.12 Therefore, it should come as no surprise that the problem of piracy is a major concern to the music industry. This Comment will discuss the current state of music piracy in Europe. Part II will describe exactly what piracy is, and will discuss the current problems with piracy in Italy, Bulgaria, and England. Part III will survey existing international copyright protection. Part IV will address enforcement, dealing with what has worked and what has not. Part V argues that a distinction should be drawn between bootlegging and counterfeiting. Bootlegs are not as damaging to artists and the music industry as counter- feits are. Finally, Part VI argues that the music industry should concentrate more on a market-based solution towards combating piracy. The release of more live performances, the use of anti- piracy holograms, and lowering the prices of compact discs (hereinafter "CDs") will ultimately be a more effective way of reducing the share of the market dominated by pirated recordings. LEXIS, News Library. 7. See Ira B. Selsky, Music Publishing in the InternationalMarketplace, 17 WHITrIER L. REV. 293, 294 (1995). 8. Id. 9. Synchronization rights are the rights to use a song in a motion picture, television show, or commercial. See Selsky, supra note 7, at 294-295. 10. See id. 11. See Copyright: Music Industry Voices Fears Over Information Society Directive, EUR. REP., July 11, 1998, available in LEXIS, News Library. 12. See Alice Rawsthorn, Music Industry Cracks Down on Piracy; New Global Network will Detect and Act Against UnauthorizedManufacturers and Distributors, FIN. TIMES (London), June 4, 1997, at 6, available in LEXIS News Library. 1999] COMBATING MUSIC PIRACY IN EUROPE II. Background A. What is Piracy? The term "piracy" refers to the illegal duplication and distribution of sound recordings.13 This term is often used imprecisely, and is used interchangeably with the term "bootleg" recording. For purposes of this comment, precise usage of the terms are necessary, as they have different meanings. Piracy is a broad term that takes three specific forms: 1) counterfeits, 2) bootlegs, and 3) compilations.14 A counterfeit is a copy of a legitimate release.15 Not only is the music duplicated, but in addition the artwork and packaging of the CD are duplicated as well. 6 Bootlegs refer to unofficial recordings of a live perfor- mance. 7 Bootlegs are sometimes taped from either radio or television, but are more commonly taped when a concert-goer smuggles a recorder into a concert. 8 Compilations are unautho- rized collections of previously released material. 9 They do not necessarily duplicate the cover design of official releases or the playing order of the tracks on the album.20 Of the three types of pirated sound recordings, counterfeits pose the biggest problem to 21 the music industry. B. Who Gets Hurt by Piracy? In terms of dollars lost to piracy, the music industry's recording companies are hurt the most.22 However, they are not the only victims. The musical artists themselves are also greatly 13. See GrayZone-FederalAnti-Piracy and Bootleg FAQ [hereinafter FAQ] (visited Sept. 18, 1997) <http://www.grayzone.com/faql.htm>. 14. Id. 15. See David Schwartz, Note, Strange Fixation: Bootleg Sound Recordings Enjoy the Benefits of Improving Technology, 47 Fed. Com. L.J. 611 (1995). 16. See FAQ, supra note 12. 17. See Schwartz, supra note 15, at 613. 18. See id. at 614-615. 19. See id. at 621. 20. See id. 21. See id. at 620. 22. See Global Piracy Hits New High, MusIc & MEDIA, Sept. 27, 1997, at 1, available in LEXIS, News Library. The music industry is dominated by the "Big Five" record companies-Bertelsman Music Group (BMG), EMI, MCA, Sony, and Warner. See Alice Rawsthorn, Internet Sales Could Become Key to the Music Industry, FIN. TIMES (London), June 2, 1998, at 22, available in LEXIS, News Library. 386 DICKINSON JOURNAL OF INTERNATIONAL LAW [Vol. 17:2 affected by piracy in that they lose royalties they would have received had a legitimate recording been purchased.23 It is not uncommon for popular artists to lose in excess of 10% of their income because of piracy.24 Consumers are also hurt by piracy, as the prices of legitimate recordings are driven up because of the financial loss incurred by record companies.25 Lastly, piracy causes European governments lose large26 amounts of Value Added Tax, income tax, and company taxes. C. How Piracy Operates Piracy of CDs has greatly intensified in the last several years as a result of the availability of cheaper CD production equip- ment. 27 In 1996, the quantity of seized pirated CDs outnumbered the number of seized pirated cassettes for the first time.8 Today, it costs approximately $800,000 to produce a factory capable of manufacturing three to four million pirated CDs a year.29 In 1996 it cost twice that amount.3" These factories feature high quality equipment, including professional consoles for the production of master tapes and a print room for inlay production.31 Illegal factories are not the only source of pirated works since legitimate production facilities sometimes sell unauthorized recordings "on the 3 2 side.c 23. See Margo Lanford, Countering Bootlegs Demands Vigilance, BILLBOARD MAG., Nov. 5, 1994. 24. See Cunningham, supra note 1, at 3. For example, the British pop group "The Spice Girls" are said to be losing 13% of their income because of pirate CDs. Id. 25. See FAQ, supra note 13. 26. 26. See James Meikle, CD and Cassette Pirates 'Skim Off Pounds 3 Billion a Year, THE GUARDIAN (London), Sept. 19, 1997, at 7, available in LEXIS, News Library. The sales tax on CDs in the U.S. is between two and seven percent, while rates of Value Added Tax (VAT) in Europe go up to as high as twenty-five percent. See Emmet Oliver, Music Group Warns EU Over High VAT Rates on Recordings, THE IRISH TIMES, Oct. 17, 1996, at 16, available in LEXIS, News Library. 27. See Alice Rawsthorn, Music Piracy Crackdown Planned, FIN.